A look at the day ahead in European and global markets

By Rae Wee, Correspondent

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Oil prices climbed on Tuesday, after the U.S. military conducted strikes in southern Iran in what it described as defensive actions, just as investors were growing more hopeful of ‌a peace deal between the two nations.

The strikes came as Iran's top negotiator and its foreign minister were in Doha on Monday for talks with Qatar's prime minister on a potential deal with the U.S. to end the three-month-old war.

An Iranian newspaper with a cover photo of U.S. President Donald Trump, in Tehran, Iran, February 17, 2026. Majid Asgaripour/WANA (West Asia News Agency) via REUTERS

Washington and Tehran have played down hopes for an imminent breakthrough. That kept optimism in check, with the dollar regaining ⁠some of its safe-haven appeal while stocks were mixed.

Investors are hoping for a deal to end the war, with focus on the reopening of the Strait of Hormuz.

Japan's Nikkei newspaper reported that the U.S. and Iran are discussing a plan to open the waterway about 30 days after the two countries reach a deal to end hostilities, though details remain scant.

Until then, energy prices are likely to remain elevated, putting policymakers in a bind and adding more pressure on businesses and everyday consumers as inflation picks up.

Graphics are produced by Reuters

In Sri Lanka, the central bank ‌caught ⁠markets off-guard by raising its benchmark policy rate by an outsized 100 basis points, in a bid to stem inflation and sharp pressure on the currency.

Meanwhile, Bank of Japan Deputy Governor Ryozo Himino said developments in the Middle East will factor into the central bank's rate-hike timing.

Investors are now leaning toward a 25-basis-point ⁠rate hike from the Federal Reserve by December, a sea change from the two cuts priced in at the start of the year, while the European Central Bank and the Bank of England are ⁠also seen tightening policy.

On the data front, the Conference Board's U.S. Consumer Confidence Index is due later on Tuesday.

The index is expected to edge down eight-tenths of a point to ⁠92 in May, with higher gasoline prices triggered by the Iran war likely to remain a source of concern for consumers.